CTM06250 - Corporation Tax: company reconstructions: relevant liabilities restriction - introduction

CTA2010/S945

The relevant liabilities restriction at CTA2010/S945 disallows CTA2010/S45losses otherwise available to a CTA2010/S938 successor company. Broadly speaking, the losses disallowed equate to the amount of the debts the predecessor company is not able to pay.

It is fairly common, especially in receivership cases, for the creditors of the business not to be transferred with the trade. These creditors are then left stranded in the predecessor company, with little or no chance of being paid.

The restriction is calculated as follows:

1. add up the liabilities, except share capital and reserves, kept by the predecessor,
2. deduct the value of the assets kept by the predecessor,
3. deduct the sale consideration given for the transfer.

If the result is a positive sum, that is the amount of the relevant liabilities restriction. Losses up to and including that amount are then disallowed (any losses in excess of that sum being allowed).

If the result is a negative sum do not disallow any losses.

There is a more detailed guidance relating to the restriction at CTM06260 and CTM06270.

Note also that:

• Section 945 restricts the allowance of losses on transfer to the successor company. Such disallowed amounts do not then revert to the predecessor - they are extinguished.
• Section 945 refers only to losses brought forward under Section 45. The restriction does not apply to the computation of capital allowances and balancing charges under Section 948.